NLRB Finds Joint Employer Status Can Exist Merely Based on Indirect or Potential Control

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Overturning decades of precedent, the National Labor Relations Board (NLRB), on August 27, 2015, issued its long-awaited decision in Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Island Recyclery, 362 NLRB No. 186 (August 27, 2015). The decision establishes a new standard for determining when two entities are a single “joint employer” over a group of workers.

Under the historical standard, to be considered a joint employer, it was necessary that both entities exercise control over the terms and conditions of the workers’ employment and, importantly, that the control was both “direct and immediate.” In comparison, “limited and routine” control or the ability to control without actually exercising control was not sufficient to qualify as a joint employer. The Board’s new test eliminates the requirement that the control be either immediate or direct and considers the potential (e.g., contractual rights) one party has to directly or indirectly control the employment terms of another entity’s workers. This type of control is typically reserved or exercised by parent companies over subsidiaries, franchisors over franchisees, leasing employers over leasing or temporary services providers, contractors over subcontractors, and, indeed, any company that contracts with another to perform work necessary to its operations.

Background

BFI Newby Island Recyclery (BFI) owned and operated a recyclery at which it had subcontracted a portion of the recycling operation, called the “sorting line,” to Leadpoint Business Services. The issue in this case was whether BFI and Leadpoint, a staffing company, were joint employers of the Leadpoint workers whom the union sought to represent.

Leadpoint hired, disciplined, and fired its own workers, had a large staff of supervisors and human resources personnel on-site, and paid its workers directly. Because the sorting line was only part of BFI’s recyclery operation, BFI determined the hours that Leadpoint needed to staff the line, the speed at which the line must move, and the physical environment at the recyclery. It also gave general tasks to the Leadpoint supervisors. However, the large staff of Leadpoint supervisors independently set the standards for picking material out of the recycling stream, trained its workers, and monitored each shift using Leadpoint productivity forms. In comparison, BFI supervisors spent most of their time uninvolved in sorting line activities in areas away from the Leadpoint workers. The contract between BFI and Leadpoint reserved a variety of rights to BFI, but BFI did not exercise them.

The NLRB’s Decision

The NLRB majority concluded that the current standard requiring “direct and immediate” control was inconsistent with the realities of today’s workplace and inimical to the National Labor Relations Act’s purpose of fostering collective bargaining. According to the majority, “the right to control is probative of an employment relationship—whether or not that right is exercised [emphasis added].” Furthermore, the majority held that the right to control “may be very attenuated” or indirect.

The Board applied this expanded standard to the facts of the case. Relying primarily on BFI’s potential control over Leadpoint’s workers and the indirect control it exercised over those workers in a variety of ways, the Board found that BFI was a joint employer of Leadpoint’s employees. Specifically, the Board relied on the following facts:

The contract between BFI and Leadpoint required Leadpoint applicants to pass a drug test, allowed BFI to prohibit Leadpoint from using former BFI employees deemed ineligible for rehire, and allowed BFI to require Leadpoint to meet or exceed its own hiring selection procedures and tests, despite the majority’s recognition that “BFI does not participate in Leadpoint’s day-to-day hiring process.”

The contract gave BFI “the “unqualified right” to discontinue the use of any Leadpoint workers. Although the Board noted that BFI had asked Leadpoint to not use particular workers in only two instances (in which BFI had observed them consuming alcohol or damaging property), the majority acknowledged that “Leadpoint conducted its own investigation of the alleged misconduct.”

The contract required Leadpoint workers to comply with BFI’s safety policies and BFI retained the right to enforce those safety policies, but there was no evidence showing that BFI actually did so.

The contract was based on Leadpoint’s labor costs plus a specified percentage mark-up (i.e., it was a “cost-plus” contract), which, the Board concluded, indirectly set the Leadpoint employees’ pay, included “the apparent requirement” that BFI must approve pay increases, and prohibited Leadpoint from paying its workers more than BFI paid its own employees for similar work. Despite those contractual provisions, the Board majority recognized that “Leadpoint determines employees’ pay rates, administers all payments, retains payroll records, and is solely responsible for providing and administering benefits” under the contract.

The Board concluded that BFI exercised control “over the processes that shape the day-to-day work” of Leadpoint’s workers by controlling the speed at which the conveyor belt moved material down the sorting line, and thereby controlling the speed at which the Leadpoint employees were required to work. The Board also concluded that BFI exercised control by setting productivity standards and assigning specific tasks with “near-constant oversight,” despite recognizing that Leadpoint had a large on-site supervisory staff directly overseeing its workforce that was “responsible for selecting the specific employees who will work during a particular shift.”

Key Takeaways

As the Board stated in the introduction to its decision, this case rejects decades-old principles for determining joint-employer status under the Act. The Board’s holding on the facts of this case demonstrates that joint-employer status can be based on the rights a party reserves under a contract, the indirect control it exercises over a third party’s workers due to the nature of the services it contracted to the third party, or the standards and limitations it imposed on those services. Moreover, by claiming that it was applying the common law test for determining whether an employment relationship exists, the Board is creating precedent for other governmental agencies—state and federal alike—to rewrite historical understandings of the employment relationship and apply them far beyond the Board’s reach under the National Labor Relations Act.

For a detailed discussion of this important decision, join us for a one-hour webinar, The NLRB’s New Joint Employer Standard: Understand How It Can Affect You, on Tuesday, September 8, 2015, at 2:00 p.m. Eastern. Our speakers, former NLRB Member and Washington, D.C. shareholder Brian E. Hayes and Phoenix shareholder Mark G. Kisicki, will explain the decision, its impact on employers, and what the future may bring. To register for this timely program, click here.

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